Treasuries rallied on Monday as investors flocked to the safety of US government bonds after equities slumped in a selloff driven by technology shares.
The yield on 10-year US notes fell as much as 12.5 basis points — the most intraday in almost two weeks — to 4.50%, before paring the decline. The two-year rate, which is highly sensitive to expectations for Federal Reserve policy, dropped 10 basis points to 4.17%, the lowest in over a month. Haven currencies including the yen and the Swiss franc surged.
Global markets were shaken by news of a fresh artificial intelligence model from Chinese startup DeepSeek, which raised questions over America’s technological dominance and fueled concerns that sky-high US tech valuations were unwarranted. Tech stocks plunged across the globe. European bonds also benefited from risk-aversion, with debt from Germany, Italy, France and the UK all gaining.
“It’s the by-the-book, flight to quality to the Treasury market, as risky assets plummeted,” said Chris Diaz, global fixed income portfolio manager at Brown Advisory.
The extent of the slide in equities will determine how long the haven trade runs for bonds, given key events ahead this week, including two Treasury auctions Monday and the Federal Reserve’s next decision on monetary policy on Wednesday. Meanwhile, President Donald Trump’s tariff vows are also in focus.
“Near-term, and assuming the buy dip crowd — in equities — doesn’t show up right away, this could be the first real tightening of financial conditions we’ve seen in a while,” said Jack McIntyre, portfolio manager at Brandywine Global Investment Management. He said he’s “watching for now as opposed to jumping into the fray” in bonds.
The surge in Treasuries on Monday had the biggest impact on five- to 10-year yields and lowered the expected yields for the day’s two scheduled auctions — $69 billion of two-year notes at 11:30 a.m. Washington time and $70 billion of five-year notes at 1 p.m. The drop in yields could potentially curb demand, as may this week’s earlier-than-normal start to the auctions, and scheduling the two sales in one day, which is also unusual. Meanwhile, corporate bond sales that were expected to go forward are in doubt because of the stock-market selloff.
Fed View
Amid the slide in equities, traders resumed fully pricing in two quarter-point interest-rate reductions from the Fed this year. Wagers on a March cut also increased to more than one-in-three, compared to one-in-four last week.
Early flows in interest-rate futures that track Fed meetings this year included trades targeting three or four rate cuts by September this year, hedging for more easing than the current half-point priced by December.
Still, Fed officials are seen holding rates steady this week as inflation remains above target and the path of Trump’s economic policies remains highly uncertain. Lauren van Biljon, portfolio manager at Allspring Global Investments, said clarity may only start to emerge in the second quarter after the review of trade policy commissioned by the president.
“All central banks can really do right now is flag potential risks to current data, and really it leaves them pretty much on hold,” she said. “There is so much policy uncertainty into this year, next year and the hereafter, and that will be a huge driver of not just US growth, but global growth and inflation.”
Meanwhile, the yen and the franc, traditional haven assets, rallied. The Japanese currency gained as much as 1.5% to 153.72 per dollar, the strongest level in more than five weeks, while the franc jumped 1% to 0.8965 per dollar. The US dollar traded mixed against its Group-of-10 peers, with a broad gauge of its strength edging lower.
“The clearest analogy that comes to mind is the DotCom unwind of the 2000s where an external shock forced a large sector-specific unwind of US tech valuations,” said George Saravelos, global head of FX research at Deutsche Bank AG. That ultimately resulted in “a weaker dollar via an unwind of equity inflows and narrowing rate differentials versus the rest of the world,” he wrote in a note to clients.
What Bloomberg strategists say...
“Any further gains in Treasuries will face a reality check from Friday’s core PCE numbers. ...The central bank will find it hard to cut rates against a backdrop of a still-resilient economy.”
— Ven Ram, MLIV cross assets strategist, Dubai.
US yields rose sharply earlier this year as traders reset expectations for monetary policy on speculation that Trump’s policies would fan price pressures. A gauge of where investors see inflation over the second half of the next 10 years has climbed to 2.60%, the highest since July.
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